Determinants Of Capital Structure: Evidence From The Nairobi Securities Exchange

Abstract

Capital structure decisions are at the core of modem finance thinking. Capital structure decisions offer opportunities to create value for shareholders, yet these opportunities are often neglected because of difficulties in identifying the optimum capital structure that will maximise shareholder value (Opler, Saron, and Titman, 1997). The study, conducted from August 2012 to October 2012, set out to establish the determinants of capital structure in companies listed at the NSE. Leverage was the dependent variable, with Size, Profitability, Tangibility, Growth Opportunity, Tax, Non-debt tax shields, and Risk of a firm being the independent variables. The study was primarily administered through the use of secondary data obtained from the financial statements of these companies. This was then analysed using descriptive statistics. Resultant data was subsequently presented using appropriate methods. The study also undertook correlation and multiple regression analysis. The results of the correlation analysis reflect a positive correlation between size, profitability, and tangibility on the one hand, and growth and non-debt tax shields on the other. There is no relationship between all other independent variables examined. The results of the multiple regression analysis indicate that three (size, profitability and growth) of the seven independent variables are significant at a 5%. Future studies in this area could delve deeper into each of the measures of study to determine their individual relationship with Leverage. Future studies may also consider the determinants of capital structure in non-listed companies.